Many people are considering starting an Airbnb- are you one of them?
With high short term rental rates for vacation homes, it can seem like an easy road to generating excellent rental income.
But before you jump into starting an Airbnb, there are certain aspects of the industry you should understand. Knowing what Airbnb investment entails and how to start an Airbnb business the right way is crucial to your success as a real estate investor.
In this article, we will lay out everything you need to know before starting an Airbnb.
What Do I Need to Know Before Starting an Airbnb?
Right off the bat, it’s important to establish two things:
- Like anything worthwhile, it’s hard work to invest in Airbnb.
- Airbnb investment is a real business, and it should be treated as such.
Inexperienced real estate investors or investors who have not tried the Airbnb strategy might be fooled into thinking Airbnb is an easy way to make money. While starting an Airbnb business can be a great way to earn income and is certainly worthwhile for the right person, it is not for everyone.
So, Who Is Starting an Airbnb Business For?
- Someone who likes meeting people/customer service
- Someone who is organized and determined to start a serious business
- Someone who is willing to put in hard work and energy into an Airbnb investment property
What to Know About Buying Airbnb Property
The first step in starting an Airbnb is buying an Airbnb property. You might think this is as simple as picking your favorite vacation destination and finding an adorable cottage for sale. In a perfect world, this might be the case. However, there are many considerations that go into buying Airbnb property successfully.
What to Look For
- A profitable Airbnb rental market
- A profitable Airbnb investment property in your price range
- A rental property that is zoned appropriately for short term rentals
Successfully starting an Airbnb requires that all three of the above conditions are met. When searching for investment properties, you should never make any assumptions. In order to make money in real estate, you must do your homework, which includes Airbnb rental market analysis, Airbnb property analysis, and legal research on both the state and local level.
Related: Why Do Some Airbnb Properties Succeed While Others Fail?
Know Your Rental Market
One of the first things you should establish before starting an Airbnb is where you’d like to invest. A good place to start is with general information on what Airbnb rental markets are profitable. You can start by looking at our list of 50 best cities for Airbnb rental income.
Once you have an idea of where you’d like to buy, you can use Mashvisor’s real estate heatmap to identify specific neighborhoods and determine their profitability.
While a particular city may appear on the list of best cities for Airbnb investment, that doesn’t mean that every neighborhood within that city performs well. That’s why the heatmap is an important tool to utilize when buying Airbnb property because it helps you conduct neighborhood analysis.
Rental Property Analysis
After narrowing down your search to specific neighborhoods, your Airbnb investment analysis should not stop there. One of the most important pieces of information a real estate investor should know before starting an Airbnb is whether or not a property has the potential to make money.
When it comes to Airbnb analytics, Mashvisor’s Airbnb investment calculator takes care of the work for you. Some important metrics the Airbnb investment calculator can provide include Airbnb occupancy rate data as well as data on cash flow and return on investment.
Related: What Airbnb Profit Margin Can You Expect in 2020?
You’ll also find Airbnb comps. With this information, you can determine your rental rates to set appropriate prices, which allows you to have an understanding of your Airbnb income for a particular investment property.
Related: Airbnb Estimator: A Tool for Estimating Income
Without this tool, you’d be stuck spending hours collecting Airbnb data and manually entering it into an Airbnb spreadsheet. Taking advantage of Mashvisor’s Airbnb investment calculator is a must for serious investors who want to get the right numbers to make an investment decision fast.
Understand Airbnb Laws
Now you’ve figured out the perfect investment property to start your Airbnb business with- or so you thought! Before starting an Airbnb, there is more you need to know.
Be sure to check both the state and local laws governing Airbnb landlords. For quick reference, you can start by checking out our article on 20 Cities With No Airbnb Legal Issues in 2020.
When starting an Airbnb, it’s important to make sure you are complying with all laws in order to keep your business successful. What looks like a great investment could turn out to be a waste of time and money if your business is shut down. Even if your state doesn’t have Airbnb laws, be sure to check with your local government as well, as local laws can vary.
Get Business Savvy
We’ve already established that starting an Airbnb is not as simple as it seems on the surface. A part of starting an Airbnb that potential real estate investors should be aware of is the fact that it is a legitimate business. With this realization comes a level of responsibility.
Steps to Plan and Organize Your Airbnb Business:
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Decide on a business entity (or not).
Will you buy multiple properties and operate under a name other than your own? This may require a DBA or LLC. The difference is that an LLC will protect your assets and remove some liability. It also costs more and takes longer to get than a DBA. If you are only operating one Airbnb or want to use your name to do business, you may not need to register a legal entity.
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Find an organized way to keep records.
You will be responsible for paying taxes on all of your Airbnb income, so you will need to keep impeccable records. Your records must include all of your income, expenses, complaints, repairs, maintenance, etc. Getting software can help automate and organize your data.
Related: The Real Estate Investor’s Guide to Airbnb Tax Deductions
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Understand your insurance.
If you are listing your property on Airbnb’s website, they provide up to 1 million per property in insurance as a part of the fee for using their platform. If you determine that this is not enough, or you use a platform that doesn’t offer insurance, you may need to seek additional coverage.
Starting an Airbnb is rewarding and profitable when done right, but it is also a responsibility that should be taken seriously. It is important for real estate investors to know what they are getting into when purchasing an Airbnb investment property as it can be quite different from traditional real estate investing. It is also crucial to be aware of the laws that govern Airbnb landlords as well as the legal responsibilities associated with owning short term rental properties.
If you think you have what it takes to pull off a successful Airbnb business, let Mashvisor help you navigate the rental market and choose your ideal Airbnb investment property. To start using some of the tools mentioned in this article, start out your 7-day free trial with Mashvisor now.